Why is McDonalds undergoing some difficult times whereas their former subsidiary, Chipotles is growing exponentially? What is keeping McDonalds stuck in continuing to make poor decisions and is there an easy solution? I can’t help but want this American icon to see successful days again.
All of the recent business news have been less than stellar. McDonalds reported that their profits are down 21%. In response, their CEO, Don Thompson has recently resigned before he could be fired. McDonalds will be replacing him with another insider. They have tried introducing new items to the menu, and various media campaign roll outs. All their efforts have been a bust.
It is my contention that McDonalds which has a strong policy of promoting from within, now needs some outside experts to help them face their culture issues. Without facing the pain of undergoing some major changes in their culture, no matter what they do, they will continue to lose market share. This non constructive, stagnant culture is reflected by some of their management decisions. For instance, in 1999, Chipotles was a subsidiary of McDonalds and by 2002, McDonalds owned about 90% of Chipotles stock. By 2006, Chipotles CEO, Steve Ellis completely separated his organization from McDonalds due to cultural differences. When McDonalds sold out from Chipotles, they pocketed about 1.5 million dollars which is now worth about 13 billion dollars in 2015. The CEO Steve Ellis’ goals of sustainability, purchasing high quality products and non GMO products whenever possible, better treatment of employees were not compatible with McDonald’s priorities and management style.
The McDonalds restaurants are operated by franchise owners but they are heavily monitored by McDonalds executives in order to insure compliance. However, these executives allow the franchise owners wide latitude as to how to manage their employees.
This cultural unhealthy work environment is exemplified by the firings of several long term, Black employees, mostly in the South Boston, Virginia area, this past year. Several were fired together with the reason given, that they did not fit the profile. When these workers contacted executives at the corporate offices, they received no support. Consequently, these employees and others are filing suit against McDonalds for their unfair employment practices and this action has been covered in the business news outlets such as The Washington Post. This news is the cherry on top of other negative news including their 2014 dismal earnings and the scandal of them purchasing expired KFC chicken from a China vendor.
What opened the door to allow these fired workers to file suit against the corporate offices as well as the franchise owner, is a new 2014 ruling by the National Labor Relations Board. As per the 7/30/14 NY Times article, titled, “Labor Ruling on McDonald’s Has Business Worried,” the author, Steven Greenhouse writes the following:
“After a federal agency’s decision that McDonald’s is jointly liable for the employment actions of its franchise operators, businesses across the United States were puzzling over the decision’s potential reach. Many feared that they, too, might fall under that broad umbrella.
Industry trade groups reacted angrily to the decision by the general counsel of the agency, the National Labor Relations Board, quickly signaling their intention to ask the federal courts to overturn it. At the same time, business executives began exploring how to respond to the agency’s move — whether their companies should distance themselves more from their franchised operations to avoid being swept under the new ruling or perhaps take a more hands-on role.
Craig Becker, the A.F.L.-C.I.O.’S general counsel and a former labor board member under President Obama, said companies should start paying more attention to the behavior of their franchised operations in response to the N.L.R.B. general counsel’s decision. “The upstream companies – whether McDonalds or the brand in the garment industry- may have to begin thinking not only of how big the hamburger or what the “Golden Arches” look like, but how the workers are being treated and whether their rights are respected.”
UPDATE 3/23/15:
In my research, I found an interesting tidbit on the 10/23/14 CNN Money article, titled ” McDonald’s helps workers get food stamps,” regarding McDonald’s business decline. The author exposes the fact that there is a corporate service, McResource line provided to employees to inform them how they could access government programs such as food stamps and heating assistance to supplement their incomes. I have footnoted a link below regarding this article.
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